Macroeconomic impacts of fiscal shocks on the Moroccan economy: a disaggregated SVAR analysis

Abstract

PurposeThe present paper aims to evaluate the structural impact of exogenously induced fiscal shocks on the Moroccan economy. This entails an analysis of the effect on the GDP of COVID-19-induced fiscal shocks manifesting in terms of budgetary revenues and expenditures. A key aspect of this analysis addresses the size of the tax and fiscal multipliers.Design/methodology/approachThe study examines the structural relationship between five variables during the period between Q1 2009 and Q2 2020 using an SVAR approach that allows for a dynamic interaction between ordinary expenditures and revenues on a quarterly basis.FindingsPositive structural shocks on public spending are likely to negatively impact economic growth. Negative economic growth, in turn, will damage price levels and interest rates, mainly over the long term. However, public-revenue-multiplier-associated shocks exceed these price- and interest-rate multiplier-associated shocks. Indeed, a structural shock to ordinary revenues can have a positive but insignificant impact on the GDP stemming from the ensuing decrease in the government budget deficit that proceeds from the increase in government revenues.Originality/valueThis is one of the first studies in the Moroccan context to assess the impact of the current worldwide pandemic on public finances. In addition, this study highlights the importance of boosting economic recovery through public spending.

How Does Economic Growth Respond to Public Infrastructure Expenditure Shocks? Evidence from SVAR in Nigeria

“…The analysis of economic growth responses to public infrastructure expenditure or fiscal shock has a long history but this study provides a brief review of the subject matter. For example, Alami, Idrissi, Bousselhami, Raouf and Boujettou (2021) employed quarterly time-series data and structural auto-regressive estimation techniques to investigate the macroeconomic of budgetary shocks' effect on Morocco's economy. The findings indicate that while structurally beneficial shocks to public spending have an adverse effect on economic growth, negative economic growth ultimately has a long-term effect on average price levels and interest rates.…”

The Response of Macroeconomic Variables to Government Spending Shocks in the Sudanese Economy 1989-2019: Comparing the Structural Shocks (DSGE Approach) and Impulse Response (SVAR Model)

“…Fiscal policy must strike a balance between the requirement to enhance capital formation and the marginal propensity to save by lowering consumption levels and the need to reallocate resources through transfer payments in order to achieve an equitable income and wealth distribution system. The second need may be met at the expense of the former [5].…”